Ben Bernanke Says No One Understands Gold, Including Himself

U.S. Federal Reserve Chairman Ben Bernanke told the Senate this morning that no one understands gold prices. In fact, he said he doesn’t even understand them (should we be worried?). He also told the committee that the decline in the price of the precious metal may mean that investors are less concerned about the economy seeing any sort of “extreme outcomes.”

Fewer people taking out “disaster insurance”

The Fed chairman called gold “an unusual asset,” reports Jeffrey Sparshott of The Wall Street Journal. He said people buy it as some sort of “disaster insurance,” which means that since gold prices are falling, fewer people feel like they need insurance against a major economic disaster. Bernanke also expressed a complete lack of understanding about gold.

“Nobody really understands gold prices and I don’t pretend to understand them either,” he told the Senate.

The price of gold has fallen nearly to its lowest level in three years as the U.S. economy begins to show signs of improving. Investors have been keeping an ear to Ben Bernanke’s comments, listening for any indication that the Fed will begin tapering its $85 billion per month bond buying program.

Gold versus inflation: Ben Bernanke

Bernanke believes that falling fold prices also means that investors are not only confident about the economy but also not concerned about the Fed’s programs causing inflation to spike. He did admit today that gold isn’t a good hedge against inflation, particularly because gold price changes don’t predict inflation.

On Wednesday at the Delivering Alpha conference, John Paulson made the case for continuing to hold gold even though prices are falling. He still thinks inflation is just around the corner, in spite of what the Fed chairman said today about a lack of inflation concerns among investors.

Gold futures rise: Ben Bernanke

Gold futures edged upward today after Ben Bernanke’s, recouping some of the losses from the previous trading session, according to Myra P. Saefong and Sara Sjolin of MarketWatch. Gold for August delivery rose .6 percent to $1,2850.60 per ounce. On Wednesday it fell $12.90 during the trading day.

The U.S. dollar also moved higher today, extending its Wednesday gains.